Masterclass on “How think rationally while investing and cope with emotions” by Mr. shyam sekhar & Mr. P V Subramanyam

One stock love: There are many people who are largely concentrated in a stock they love and defend their positions by saying:

1) I am willing to wait. I don’t mind not making money for long time.

2) The stock gives me dividend

3) I don’t mind stock going down

These are the reasons they justify for their obsessiveness for the stock. There is also another side which hates a single stock or a theme like for example there are people who hates a theme like PSU’s or energy. They hate because they think price won’t go up for these stocks.

As an investor what are the things which one needs to understand about this one stock love or one stock hate?

In one stock love huge amount of wealth is created. For example: Azim Premji, Bill gates etc. Because they had one stock they invested their money, time into it and made it huge but remember they also during their journey diversified by thinking I something goes wrong I should have something to fall back on. We do not know the company as much as the owner does so could you and azim Premji had made similar amount of money (in %ate terms) even after starting at same time?

The answer is no. Another thing “Will you be able to sleep with this kind of portfolio?” Again the answer is “No” because going from low base to high is fine but after you reach a certain level you will have to diversify otherwise if some unforeseen event happens and your wealth which you created is down by 40-50% then what will you do? While concentrating your position in a stock you need to understand the company so well just like a promoter.

Understanding portfolio construction and portfolio sizing is very important for creating wealth in equity market unless you are a promoter.

Historical returns: Look at the Y-o-Y return along with the CAGR because it might happen that a company in the initial phase has given handsome returns but in recent period the returns are not that good. If you see CAGR as a single factor than you would love the company as returns would be averaged so to avoid this, always see Y-o-Y returns too.

Equity market is a test of your temperament during bad times of being able to sit tight and this is not easy.

My price syndrome: Let’s take an example to understand this, If person A has bought a share of XYZ ltd at 100 rs and in a year that share price has increased from 100 to 167 i.e. 67% return in single year so people will set their expectations high and think this stock won’t go wrong and they have tendency this stock corrects also then it will not go below 100 (their purchasing price). There is no reason behind this but still people thinks if this stock corrects also then it will be above my buying price. This is called my price syndrome.

The ability to sit on cash will make you rich.

When the promoters of the company are selling their stake in their company like for example: ITC promoter sold it’s full stake after building the company too big, Aditya puri sold his stake before exiting the company then why is investor obsessed with that company? As an investor you need to take tough calls based on you rational thinking.

Things to do before buying a company:

1) Why are you buying?

2) At what price you will sell?

3) what are the trigger points when you will start thinking of selling this stock?

Always have opinion from a guy who’s thinking is different from you like for example: If your portfolio is 70-80% in equity then take opinion from a guy who hates equity what will happen is he will counter back on your every investment and ask you questions regarding that and if you can’t explain him the reason or logic then maybe that’s the time again read/ revisit the company.

Summarizing: Whether it is index or individual stock one needs to turn down his obsessive love for it and even in the parts of the market which are disliked intensely one needs to turn down hate for it and strike a balance between excessive love and excessive hate by reducing both and forming a more balance approach towards investing.